Income Tax (1st Amendment) Rules, 2022
Income Tax (1st Amendment) Rules, 2022
The Central Board of Direct Taxes (CBDT) on January 14th, 2022 has issued the Income Tax (1st Amendment), Rules, 2022 to further amend the Income-Tax Rules,1962. Through this amendment, CBDT notifies new Rule 21AJA, Rule 21AJAA & Form No. 10-IK
The rule shall come into force on April 1, 2022. The present article briefs the provisions introduced vide the Income Tax (1st Amendment) Rules, 2022.
Synopsis of Income Tax (1st Amendment) Rules, 2022
In Rule 21 AJ of Income Tax Rules, the following Rules have been inserted via Income Tax (1st Amendment) Rules, 2022
New Rule 21AJA specifies that “Computation of exempt income of the specified fund, attributable to the investment division of an offshore banking unit, for clause (4D) of section 10 of the Income Tax Act”
New Rule 21A specifies the “Determination of income of a specified fund attributable to the investment division of an offshore banking unit under sub-section (1B) of section 115AD of the Income Tax Act”
Rule 21 AJ of Income-Tax Rules,1962
Rule 21 AJ which specify “Determination of income of a specified fund attributable to units held by non-residents under sub-section (1A) of section 115AD.
Section 115AD of Income Tax Act
Section 115AD of the income tax act provides tax on the income of Foreign Institutional Investors from securities or capital gains that arise from their transfer.
According to subsection (1) of Section 115AD, the provision of section 115AD of the Income Tax Act applies only to the extent of income which is attributable to units held by non-residents, calculated in the set manner.
New Rule 21AJA of Income-tax Rules
As mentioned above, Rule 21AJA specify “Computation of exempt income of the specified fund, attributable to the investment division of an offshore banking unit, for clause (4D) of section 10 of the Act”
Exempt Income
Non-taxable income is called exempt income. Any income that an individual acquires or earns during a financial year that is deemed to be nontaxable is referred to as ‘Exempt Income
Exempted income specified under Section 10(4) is as follows:
Under Section 10, different sub-sections define what kind of income is exempt from tax
| Section 10(4)(i) | Any interest that has been paid to a person who is not a resident Indian |
| Section 10(4)(ii) | Any interest that has been paid to the account of a person who is not a resident Indian |
| Section 10(4B) | Any interest that has been paid to a person who is not a resident Indian, but of Indian origin |
For more details on Tax-Free Incomes in India, click here
The amendment provides that the income of specified fund attributable to the investment division of an offshore banking unit shall be the total of the following-
- Any income received by the eligible investment division as a result of the transfer of a capital asset referred to in clause (viiab) of section 47 of the Income Tax Act held by it, on a recognized stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in convertible foreign exchange
- Any income received by the eligible investment division as a result of the transfer of securities held by it (other than shares in a company resident in India);
- Any income received by the eligible investment division from securities held by it and issued by a non-resident (not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India;
- Any income received by the eligible investment division from a securitization trust which is chargeable under the head “profits and gains of business or profession.
Form No. 10-IK – Annual Statement of Exempt Income
The eligible investment division needs to furnish an annual statement of exempt income in Form No. 10-IK electronically under the digital signature on or before the due date, which is duly verified in the manner indicated therein.
The new FORM NO. 10-IK is attached here for reference:
notification-06-2022-4-6Conditions for the investment division
According to the Income Tax (1st Amendment) Rules, 2022, an investment division of an offshore banking unit should fulfill the following conditions for Section 10(4D):
The investment division should maintain separate accounts for the registered investment division reflecting the true and fair accounts of all transactions relating to the investment division and which shall ensure that direct and indirect expenses relating to the incomes referred to in sub-rule (1) and other incomes are properly recorded, accounted for, and apportioned to these activities;
Investment division shall get the accounts, audited by an accountant before the specified date and such accountant shall furnish by that date the report of such audit in Form No. 10-IL electronically under digital signature
The investment division should maintain proper documentation in respect of the following
- Inbound remittance for buying and selling the investments
- The use of inward remittance made to India
- The investment division should maintain bank statement of all accounts of the registered investment division,
- The investment division should maintain contract notes relating to the purchase and sale of securities by the registered investment division; and
- The investment division should maintain a statement of securities issued by the custodian.
New Rule 21AJAA of Income-tax Rules
As mentioned above, Rule 21AJAA which specify “Determination of income of a specified fund attributable to the investment division of an offshore banking unit under sub-section (1B) of section 115AD of the Income Tax Act:
The amendment provides that the income of specified fund attributable to the investment division of an offshore banking unit shall be the total of the following-
- Income by way of long term capital gain referred to section 115AD(1b) received by the eligible investment division, as a result of the transfer of security referred in section 112A of the Act and held by such investment division;
- Income by way of long term capital gain referred to in section 115AD(1b), received by the eligible investment division as a result of the transfer of a security, other than that referred to in section 112A of the Act, and held by such investment division
- Income by way of short term capital gain referred to in section 115AD(1b), received by the eligible investment division as a result of the transfer of security referred to in section 111A of the Act and held by such investment division
- Income by way of short term capital gain referred to in clause section 115AD(1b) received by the eligible investment division as a result of the transfer of a security, other than that referred to in section 111A of the Act, and held by such investment division
- Income from securities referred to in section 115AD(1b) of the Act, being like interest referred to in section 194LD of the Act, held by the eligible investment division
- Income from securities, held by the eligible investment division, as referred to in section 115AD(1b)of the Act and not included above.
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